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Allegheny loses city contract

The Hagerstown City Council decided Tuesday to switch energy suppliers, going with a Virginia-based company that offered a lower

The Hagerstown City Council decided Tuesday to switch energy suppliers, going with a Virginia-based company that offered a lower

November 20, 2002|by SCOTT BUTKI

scottb@herald-mail.com

HAGERSTOWN - The Hagerstown City Council Tuesday decided to switch energy suppliers, dropping Hagerstown-based Allegheny Energy for a Virginia-based company that offered a lower price and would put up a contract performance bond, Hagerstown Mayor William Breichner said.

The City Council agreed to a three-year contract, effective July 1, 2003, with Dominion Energy Marketing Inc. of Richmond, Va.

"We have had an excellent relationship with Allegheny over the years," Light Manager Terry Weaver said. "It is unfortunate they could not come in with a better price. We do wish them the best."

In a separate meeting, the Williamsport Town Council also voted Tuesday to switch to Dominion as a supplier, Mayor John Slayman said.

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Under the contract, the city will pay Dominion 4.43 cents per kilowatt hour, Weaver said. The city used 345 million kilowatt hours in the fiscal year that ended June 30, he said.

Under the five-year contract with Allegheny Energy that expires in June 2003, the city pays 3.2 cents per kilowatt hour, Weaver said.

The City of Hagerstown has contracted with Allegheny Energy for electricity since 1972, when the city closed its electric power plant, Breichner said. The Hagerstown Light Department purchases electricity wholesale and distributes it to its customers.

Allegheny Energy said it could not agree to a city requirement to put up a performance bond, Breichner said.

The city asked the energy company to put up a $6 million bond for the first year of the contract, $4 million for the second year and $2 million for the third and final year, Weaver said.

An Allegheny Energy spokesman said he could not comment on the matter Tuesday night because he did not have enough information,

Earlier this year, Breichner said that a 15-year-old consortium of four municipalities, including Hagerstown, Williamsport, Thurmont, Md., and Front Royal, Va., would ask companies interested in selling electricity to the members to submit proposals.

Thurmont and Front Royal also were scheduled to vote Tuesday night on whether to switch suppliers.

A five-year contract between the four municipalities and Allegheny Energy expires June 30, 2003.

Due to deregulation, the city considered switching electricity suppliers in 1998 but decided to remain with Allegheny Energy, which offered the lowest rates, Breichner said.

That was not the case this time.

The city received 10 bids from companies offering to be the city's energy supplier, Weaver said.

Allegheny was the second lowest bidder, Breichner said.

The city would not release the amounts of bids other than Dominion's, he said.

Representatives of Dominion attended Tuesday's meeting but said they were not authorized to speak to the media.

Breichner said last Friday he might suggest that the city keep Allegheny as a provider, even if it did not have the lowest bid, in order to help the troubled company.

"Allegheny has been a very reliable source of power for us and I would like to find a way to continue using them," Breichner said Friday. "We have an obligation to stick with them if the cost differences are not too large."

He said Tuesday that the differences were too large.

While he wants to help the Hagerstown-based company, he couldn't ignore Weaver's recommendation to go with Dominion, Breichner said.

Either the city or Dominion will have to pay to rent power lines from Allegheny Energy to deliver the electricity, Breichner said.

Finance Director Alfred Martin estimated the city's total light costs will increase from about $11 million to about $14 million per year. Electric rates will have to be increased to pay for the increased cost, Martin said.

While the new contract appears to be a significant increase, it is more a matter of the city receiving a great rate under the current contract, Weaver said.

Under a previous contract with Allegheny Energy, the city paid 4.1 cents per kilowatt hour, he said.

The loss of Williamsport and Hagerstown as clients comes after rating agencies downgraded Allegheny Energy's bond rating to junk status.

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